Wednesday, February 3, 2010

Mutual fund giant Fidelity has largely sidestepped the ETF revolution, but the company fired in important competitive salvo when they announced that starting today 25 iShares ETFs will be available for trading through Fidelity on a commission-free basis.

The 25 ETFs include 16 U.S. equity index ETFs, 4 ETFs based on international equity indices and 5 bond ETFs that cover a broad range of issuers, geographies and credit quality. The table below attempts to slice and dice these commission-free ETFs in a an way that should help investors who are unaware of some or all of these ETFs better understand their characteristics.

Included in the Fidelity/iShares 25 are three heavyweights that I have highlighted on bold blue font. Each of these ETFs trades 20 million shares or more per day on average and has a highly liquid options market. In fact, EEM and IWM are among the top five most actively traded ETFs. In addition to these three heavyweights, I have also highlighted in italicized blue font the eight other ETFs in this group which trade an average of at least 1 million shares per day. The next most liquid ETFs are in black font. Finally, I have reserved the red font for the seven ETFs that do not have options associated with them. Not surprisingly, the underlying ETFs are also among the least liquid of the group.

In terms of groupings, I have divided the ETFs into three high level categories: U.S. equity; international equity; and bonds categories. For the U.S. equity ETFs, I have further subdivided these ETFs into Morningstar style box categories. For international equity ETFs, I decompose these according to market cap and developed/emerging market exposure. Finally, for bond ETFs, these are broken down by issuer and credit quality.

Investors who have shied away from transaction-intensive strategies because of commission costs may now want to rethink some of those ideas in the context of the Fidelity/iShares commission-free ETFs. As for options traders, some stock-option strategies such as buy-writes now may deserve another look as well.

For related posts on these subjects, readers are encouraged to check out:

Mutual fund giant Fidelity has largely sidestepped the ETF revolution, but the company fired in important competitive salvo when they announced that starting today 25 iShares ETFs will be available for trading through Fidelity on a commission-free basis.

The 25 ETFs include 16 U.S. equity index ETFs, 4 ETFs based on international equity indices and 5 bond ETFs that cover a broad range of issuers, geographies and credit quality. The table below attempts to slice and dice these commission-free ETFs in a an way that should help investors who are unaware of some or all of these ETFs better understand their characteristics.

Included in the Fidelity/iShares 25 are three heavyweights that I have highlighted on bold blue font. Each of these ETFs trades 20 million shares or more per day on average and has a highly liquid options market. In fact, EEM and IWM are among the top five most actively traded ETFs. In addition to these three heavyweights, I have also highlighted in italicized blue font the eight other ETFs in this group which trade an average of at least 1 million shares per day. The next most liquid ETFs are in black font. Finally, I have reserved the red font for the seven ETFs that do not have options associated with them. Not surprisingly, the underlying ETFs are also among the least liquid of the group.

In terms of groupings, I have divided the ETFs into three high level categories: U.S. equity; international equity; and bonds categories. For the U.S. equity ETFs, I have further subdivided these ETFs into Morningstar style box categories. For international equity ETFs, I decompose these according to market cap and developed/emerging market exposure. Finally, for bond ETFs, these are broken down by issuer and credit quality.

Investors who have shied away from transaction-intensive strategies because of commission costs may now want to rethink some of those ideas in the context of the Fidelity/iShares commission-free ETFs. As for options traders, some stock-option strategies such as buy-writes now may deserve another look as well.

For related posts on these subjects, readers are encouraged to check out:

Purpose of this Blog

The intent of this blog is to educate, inform and entertain readers, while also serving as an archived learning laboratory of sorts as I try to sharpen my thinking in areas such as volatility, market sentiment, and technical analysis. I also enjoy charging off on tangents and hope that readers may find some illumination or at least amusement in these forays.

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About Me

Chief Investment Officer at Luby Asset Management LLC in Tiburon, California. Previously worked as a full-time trader/investor and also a business strategy consultant. Education includes a BA from Stanford and an MBA from Carnegie Mellon.
Useless trivia: I once broke the world pogo stick jumping record without knowing it.